RATIONALISATION OF TAX DEDUCTION AT SOURCE PROVISIONS RELATING TO PAYMENTS BY CATEGORY-I AND CATEGORY-II ALTERNATE INVESTMENT FUNDS TO ITS INVESTORS

As per the existing provisions of Section 194LBB, any payment made by Category-I and Category-II Alternate Investment Funds to its investors shall be subject to mandatory TDS at the rate of 10%. No distinction is made on account of residential status of investor at the time of deduction of TDS. Further, Section 197 does not include Section 194LBB in the list of sections for which an application can be made for lower or no withholding of TDS

-It is proposed to amend Section 194LBB to provide that deduction of TDS in case of resident investor shall be at the rate of 10% and it shall be at rates in force for non-resident investors. By virtue of this amendment, the non-residents shall be in a position to claim the benefit of lower or no TDS envisaged in relevant DTAA.

– Further, it is proposed to amend Section 197 to include Section 194LBB in the list of sections for which the application of lower or no withholding of tax can be made and a certificate can be obtained thereon.

– Consequential amendments are proposed to be made in definition of “rates in force” to accommodate Section 194LLB.

These amendments will take effect from 1st June, 2016.